Following its initial announcement in the October 2022‑23 Budget, the Government is now seeking feedback on the appropriateness of the existing regulatory settings for managed investment schemes (MIS).
It will be looking to ensure strong investor protections are in place across the financial sector, with the industry having seen several high-profile MIS failures including Trio Capital and Sterling Income Trust.
In recent months, the corporate regulator has also ramped up action against unlicensed MIS after it warned strong, targeted enforcement action will continue in the coming months as part of its focus on protecting consumers from harm and upholding market integrity.
Treasury’s consultation paper reviewing MIS considers:
- The thresholds that determine whether an investor is a wholesale client
- Whether certain managed investment schemes should be marketed and sold to retail clients
- The roles and obligations of responsible entities
- Whether ‘investor rights’ are appropriate
- Liquidity requirements for managed investment schemes
- Whether an insolvency regime is required for managed investment schemes
- Interactions between Commonwealth and State laws when regulating real estate investments by managed investment schemes.
According to Treasury, the total value of all assets held in managed investment schemes in Australia is approximately $2.7 trillion which is just over half of Australia’s broader $4.4 trillion managed funds.
It estimates retail clients make up about 5 per cent of overall direct investment in managed funds, noting retail investors also invest indirectly through intermediary structures or have indirect exposure through their superannuation fund.
Institutional or private wholesale investors, such as superannuation funds, also invest a substantial amount through registered schemes.
Over 70 per cent of responsible entities operate 5 or less registered schemes, with some concentration at the upper end with 10 responsible entities operating 46 per cent of all registered schemes.
The remaining $0.9 trillion in the sector is held by unregistered schemes which are operated by wholesale trustees, Treasury said. There were 1,791 wholesale trustees as at the end of June 2022.
“While successive governments have consulted on and implemented some legislative changes to enhance the regulatory framework for managed investment schemes, a full review of the regulatory framework has not occurred in recent years,” the consultation noted.
Submissions for this consultation close on 29 September 2023.
